Financial Data and Key Metrics Changes - The company reported net sales of $1.1 billion, which is $192 million, or 20% higher than the previous year [13] - Adjusted operating profit increased by $38 million, or 24%, to $196 million, with an adjusted operating profit margin expanding to 17.2%, an increase of 50 basis points from the prior year [13] - Adjusted diluted earnings per share rose by $0.72, or 18%, to $4.69 [13] Business Line Data and Key Metrics Changes - Acuity Brands Lighting (ABL) achieved sales of $895 million, a slight increase of $9 million, or 1%, primarily due to growth in the independent sales network [14] - Adjusted operating profit for ABL increased by $6 million to $160 million, with an adjusted operating profit margin of 17.9%, up 60 basis points compared to the prior year [14] - Acuity Intelligence Spaces (AIS) reported sales of $257 million, an increase of $184 million, benefiting from three months of QSC sales [15] - AIS adjusted operating profit was $57 million, with an adjusted operating profit margin of 22%, up 100 basis points compared to the prior year [16] Market Data and Key Metrics Changes - The lighting market remains tepid, with the company noting that the market appears to be waiting for clarity around interest rates, inflation, and policy [11] - The AIS business is recognized for its strong product portfolio, with several awards received during the quarter [10][11] Company Strategy and Development Direction - The company is focused on increasing product vitality, elevating service levels, and using technology to improve and differentiate products [5] - The strategy includes cross-selling opportunities between ABL and AIS, particularly in fueling and office markets [27] - The company aims to control what it can and is confident in the long-term performance of both lighting and spaces businesses [11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to drive margins at ABL, targeting 50-100 basis points of operating profit margin improvement per year [21] - The company is optimistic about the long-term opportunities in both ABL and AIS, with disruptive technologies taking market share [59] - Management acknowledged the challenges in the lighting market but noted that they are holding or accelerating their market position [46] Other Important Information - The company generated $141 million in cash flow from operations, which was $9 million higher than the same period in the previous year [16] - The company repurchased over 77,000 shares at an average price of around $357 and repaid $100 million of its term loan during the quarter [17] Q&A Session Summary Question: Gross margin seasonality and future expectations - Management acknowledged the impact of tariffs on gross margins and expressed confidence in the ability to drive margins at ABL over the long term [20][21] Question: Operating expenses and productivity investments - Management indicated that the muted step-down in operating expenses from Q4 to Q1 was due to prior cost-cutting measures [22] Question: Cross-sell opportunities and product portfolio gaps - Management emphasized that cross-sell opportunities should be driven by customer demand rather than aggressive pushing of products [27] Question: Backlog normalization and future growth - Management confirmed that historical seasonality would be skewed due to elevated backlog levels, with expectations of more normal seasonality in Q2 [32] Question: Tariffs and potential changes in pricing - Management discussed the uncertainty surrounding tariffs and the potential implications for pricing strategies [51][52]

Financial Data and Key Metrics Changes - The company reported net sales of $1.1 billion, which is $192 million, or 20% higher than the previous year [15] - Adjusted operating profit increased by $38 million, or 24%, to $196 million, with an adjusted operating profit margin of 17.2%, up 50 basis points from the prior year [15] - Adjusted diluted earnings per share rose to $4.69, an increase of $0.72, or 18% over the prior year [15] Business Line Data and Key Metrics Changes - Acuity Brands Lighting (ABL) achieved sales of $895 million, a slight increase of $9 million, or 1% year-over-year, primarily due to growth in the independent sales network [16] - Adjusted operating profit for ABL increased by $6 million to $160 million, with an adjusted operating profit margin of 17.9%, up 60 basis points compared to the prior year [16] - Acuity Intelligent Spaces (AIS) reported sales of $257 million, an increase of $184 million, benefiting from the inclusion of three months of QSC sales [17] - AIS adjusted operating profit was $57 million, with an adjusted operating profit margin of 22%, up 100 basis points compared to the prior year [18] Market Data and Key Metrics Changes - The lighting market remains tepid, with the company noting that the market is waiting for clarity around interest rates, inflation, and policy [13] - The AIS business is strategically differentiated and positioned for value creation, continuing to perform well despite market challenges [13] Company Strategy and Development Direction - The company is focused on increasing product vitality, elevating service levels, and using technology to improve and differentiate products [5] - The introduction of new products, such as the EAX Area Luminaire and the combination of Distech and QSC technologies, aims to enhance customer experiences and operational efficiency [6][10] - The company is committed to driving productivity and creating autonomous spaces through data interoperability [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term performance of both the lighting and spaces businesses, despite current market challenges [13] - The company is targeting 50-100 basis points of operating profit margin improvement per year, indicating a focus on long-term margin enhancement [24] Other Important Information - The company generated $141 million in cash flow from operations, which is $9 million higher than the same period last year [19] - The company allocated $28 million to repurchase shares and repaid $100 million of its term loan during the quarter [19] Q&A Session Summary Question: Gross margin seasonality and future expectations - Management acknowledged the impact of tariffs on gross margins and expressed confidence in the ability to drive margins at ABL over the long term [22][24] Question: ABL operating expenses and productivity investments - Management indicated that the muted step-down in operating expenses from Q4 to Q1 was due to prior cost-cutting measures [25][27] Question: Cross-sell opportunities between ABL and AIS - Management emphasized that cross-sell opportunities should be driven by customer demand rather than aggressive pushing of products [31] Question: Backlog normalization and future growth - Management confirmed that historical seasonality may be skewed due to elevated backlog levels, suggesting potential slower growth in the upcoming quarters [36] Question: Divergence between ISN and DSN - Management noted that while there is some noise in the accounts, the combined performance of ISN and DSN is in line with expectations [40] Question: Tariffs and potential impacts on pricing - Management discussed the uncertainty surrounding tariffs and the potential implications for pricing strategies [55][56] Question: Backlog levels and market outlook - Management indicated that backlog levels are now more consistent with pre-COVID periods, suggesting a return to normal order rates [58]

Financial Data and Key Metrics Changes - Total Q2 revenues were $224.7 million, increasing 2.9% on a core basis, with foreign currency contributing 0.9% and divestitures and discontinued products being a headwind of 6.6% [12][19] - Adjusted EBITDA was $48.7 million, representing a margin of 21.7%, an improvement of 470 basis points from Q1 [19] - Gross margin in Q2 was 47.5%, a sequential improvement of 210 basis points from Q1, primarily due to volume and lower tariff costs [18] Business Line Data and Key Metrics Changes - Food safety segment revenues were $165.6 million, with core revenue growth of 4.1%, driven by strong growth in indicator testing and culture media product categories [13] - Animal safety segment revenues were $59.1 million, with core revenue growth approximately flat compared to the prior year, although biosecurity products saw solid growth [15] - The global genomics business had core revenue growth accelerate to 6%, with solid growth in the bovine market [16] Market Data and Key Metrics Changes - Core revenue growth in Q2 was led by the LATAM region, up high single digits, while the U.S. and Canada region had mid-single-digit growth [17] - The APAC region saw low single-digit core growth, while the EMEA region experienced a low single-digit decline [17] Company Strategy and Development Direction - The company is focused on stabilizing and strengthening its core business, with a clear emphasis on improved top-line growth and profitability [4] - A rigorous process-oriented approach to commercial excellence is being implemented, emphasizing strong operational planning and data-driven decisions [5] - The leadership team has been strengthened with experienced operators to drive transformation and operational efficiency [7] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in overcoming recent macroeconomic and execution-related headwinds, with a belief that challenges are solvable or transitory [4][10] - The company raised its full-year guidance for fiscal 2026, expecting revenue in the range of $845 million to $855 million and adjusted EBITDA of approximately $175 million [20] Other Important Information - The company is in the process of divesting its global genomics business, which is expected to simplify operations and enhance margins [22][23] - The integration of Petrifilm is on track for the Q2 of fiscal 2027, with positive progress in production testing and product validation [9][56] Q&A Session Summary Question: Can you discuss the new management team and how long it will take for them to gel? - Management highlighted the recruitment of top-tier talent and emphasized the importance of experienced leaders in diagnostics and life sciences to drive operational excellence [30][32] Question: What was the headwind to margins from sample handling? - Management acknowledged challenges in sample collection but indicated improvements are expected in the second half of the year, with a focus on profitability [34][36] Question: Why hasn't the implied H2 growth or margin been higher? - Management stated that a conservative approach is being taken due to lingering macroeconomic weaknesses and the need for the new team to settle in [41][42] Question: Were there any one-time revenue tailwinds in the quarter? - Management noted a $2 million insecticide tailwind in Q2 but indicated that it was the only significant one-time factor [45] Question: What changes in the commercial organization have contributed to the strong quarter? - Management emphasized a focus on the basics, driving simplicity, and implementing a weekly forecasting process to enhance predictability [52][54] Question: How is the Petrifilm manufacturing process progressing? - Management expressed confidence in the Petrifilm project, stating that production testing is going well and the timeline remains on track [56]

Financial Data and Key Metrics Changes - Total second quarter revenues were $224.7 million, increasing 2.9% on a core basis, with foreign currency contributing 0.9% and divestitures and discontinued products impacting by 6.6% [12][19] - Adjusted EBITDA was $48.7 million, representing a margin of 21.7%, an improvement of 470 basis points from the first quarter [19] - Gross margin in the second quarter was 47.5%, a sequential improvement of 210 basis points from the first quarter, primarily due to volume and lower tariff costs [18] Business Line Data and Key Metrics Changes - Food safety segment revenues were $165.6 million, with core revenue growth of 4.1%, driven by strong growth in indicator testing and culture media product categories [13] - Animal safety segment revenues were $59.1 million, with core revenue growth approximately flat compared to the prior year quarter, despite solid growth in biosecurity products [15] - Global genomics business had core revenue growth accelerate to 6%, with solid growth in the bovine market [16] Market Data and Key Metrics Changes - Core revenue growth in the Latham region was high single digits, while the U.S. and Canada region had mid-single-digit growth [17] - APAC region saw low single-digit core growth, led by pathogen detection products, while EMEA region had a low single-digit core growth decline [17] Company Strategy and Development Direction - The company is focused on improving top-line growth and profitability, with a transformation strategy centered on stabilizing and strengthening its core [4] - A rigorous process-oriented approach to commercial excellence is being implemented, emphasizing strong operational planning and data-driven decisions [5] - The leadership team has been strengthened with experienced operators to drive growth and innovation [7] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in overcoming macroeconomic and execution-related headwinds, with a belief that challenges are solvable or transitory [4] - The company raised its full-year guidance for fiscal 2026, expecting revenue in the range of $845 million-$855 million and adjusted EBITDA of approximately $175 million [20] - Management acknowledged the importance of building credibility with investors and maintaining a conservative approach to guidance amid lingering market weaknesses [42] Other Important Information - The company is in the process of divesting its global genomics business, which is expected to simplify operations and enhance incremental margins [22][23] - The integration of Petrifilm is on track for the second quarter of fiscal 2027, with positive progress in production testing and product validation [9][56] Q&A Session Summary Question: Can you discuss the new management team and their integration? - Management highlighted the recruitment of top-tier talent with experience in diagnostics and life sciences, emphasizing the importance of operational excellence and alignment on priorities [30][32] Question: What are the headwinds to margins from sample handling? - Management acknowledged challenges in sample collection but expressed optimism for profitability improvements in the second half of the year [34][36] Question: Why is the implied H2 growth or margin not higher? - Management indicated a prudent approach to guidance, focusing on sustainable performance and the settling in of the new team [41][42] Question: Were there any one-time revenue tailwinds in the quarter? - Management noted a $2 million insecticide tailwind in the animal safety segment as the only significant one-time factor [45] Question: What changes in the commercial organization have contributed to recent success? - Management emphasized a focus on basics, driving simplicity, and implementing a weekly forecasting process to enhance predictability [51][52]

Financial Data and Key Metrics Changes - Acuity reported net sales of $1.1 billion, which is $192 million, or 20% higher than the previous year [12] - Adjusted operating profit increased to $196 million, up $38 million, or 24% from last year [12] - Adjusted operating profit margin expanded to 17.2%, an increase of 50 basis points from the prior year [12] - Adjusted diluted earnings per share rose to $4.69, an increase of $0.72, or 18% over the prior year [12] Business Line Data and Key Metrics Changes - Acuity Brands Lighting (ABL) achieved sales of $895 million, an increase of $9 million, or 1% compared to the prior year, primarily due to growth in the independent sales network [13] - Adjusted operating profit for ABL increased by $6 million to $160 million, with an adjusted operating profit margin of 17.9%, up 60 basis points from the prior year [13] - Acuity Intelligence Spaces (AIS) reported sales of $257 million, an increase of $184 million, benefiting from the inclusion of three months of QSC sales [14] - AIS adjusted operating profit was $57 million, with an adjusted operating profit margin of 22%, up 100 basis points compared to the prior year [14] Market Data and Key Metrics Changes - The lighting market remains tepid, with the company noting that the market appears to be waiting for clarity around interest rates, inflation, and policy [10] - Despite the challenging market, both ABL and AIS are performing well, with AIS being strategically differentiated and positioned for value creation [10] Company Strategy and Development Direction - The company is focused on increasing product vitality, elevating service levels, and using technology to improve and differentiate products [4] - Acuity is expanding its offerings in the Refuel segment by incorporating AIS products, including Atrius software and Distech controls, to create value throughout locations [6] - The company aims to drive productivity and enhance customer outcomes through data interoperability in its Acuity Intelligence Spaces [8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term performance of both the lighting and spaces businesses, despite current market challenges [10] - The company is targeting 50-100 basis points of operating profit margin improvement per year, indicating a focus on long-term margin growth [19] - Management acknowledged that while the lighting market is currently tepid, they are optimistic about future growth opportunities [45] Other Important Information - The company generated $141 million of cash flow from operations, which was $9 million higher than the same period in Fiscal 2025 [14] - Acuity allocated $28 million to repurchase over 77,000 shares at an average price of around $357 during the quarter [14] - The company repaid another $100 million of its term loan during the quarter, totaling $300 million repaid of the $600 million debt used to finance the QSC acquisition [15] Q&A Session Summary Question: Gross margin seasonality and future expectations - Management acknowledged that recent gross margin declines were influenced by tariffs and productivity efforts, expressing confidence in the ability to drive margins at ABL in the long term [18][19] Question: ABL operating expenses and productivity investments - Management indicated that the muted step-down in operating expenses from Q4 to Q1 was due to prior cost-cutting measures and ongoing productivity improvements [20] Question: Cross-sell opportunities between ABL and AIS - Management emphasized that cross-sell opportunities should be driven by customer demand rather than aggressive pushing, indicating a focus on durable customer relationships [26] Question: Backlog normalization and future growth - Management confirmed that the elevated backlog has positively impacted recent performance but indicated that future growth may normalize as backlog levels return to historical norms [29] Question: Tariffs and potential impacts on pricing - Management expressed uncertainty about the implications of potential tariff changes but indicated that any benefits would likely not be passed down the supply chain [49] Question: Market penetration goals and competitive landscape - Management expressed satisfaction with their market entry strategies and emphasized the importance of building a robust business model for new verticals [36]

Financial Data and Key Metrics Changes - Total second quarter revenues reached $224.7 million, reflecting a 2.9% increase on a core basis, with foreign currency contributing 0.9% and divestitures and discontinued products impacting by 6.6% [11][12] - Adjusted EBITDA was $48.7 million, representing a margin of 21.7%, an improvement of 470 basis points from the first quarter [17] - Adjusted net income and adjusted earnings per share were $22.6 million and $0.10, respectively, compared to $9.4 million and $0.04 in the prior quarter [18] Business Line Data and Key Metrics Changes - Food safety segment revenues were $165.6 million, with core revenue growth of 4.1%, driven by strong performance in indicator testing and culture media product categories [12] - Animal safety segment revenues were $59.1 million, with core revenue growth approximately flat compared to the prior year, although biosecurity products saw solid growth [13] - The global genomics business experienced core revenue growth of 6%, with strong performance in the bovine market [14] Market Data and Key Metrics Changes - Core revenue growth in the Latham region was high single digits, while the U.S. and Canada region saw mid-single-digit growth [15] - The APAC region experienced low single-digit core growth, led by pathogen detection products, while the EMEA region had a low single-digit decline [16] - Gross margin improved to 47.5%, a sequential increase of 210 basis points, primarily due to volume and lower tariff costs [17] Company Strategy and Development Direction - The company is focused on stabilizing and strengthening its core business, with a transformation aimed at improving top-line growth and profitability [4] - A rigorous process-oriented approach to commercial excellence is being implemented, emphasizing operational planning and data-driven decisions [5] - The leadership team has been strengthened with experienced operators to drive growth and innovation [6] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in overcoming macroeconomic and execution-related headwinds, with a positive outlook for the year [4][10] - The company raised its full-year guidance for fiscal 2026, expecting revenues between $845 million and $855 million and adjusted EBITDA of approximately $175 million [19] - Management acknowledged the challenges in the operating environment but believes they are solvable or transitory [10] Other Important Information - The company is in the process of divesting its global genomics business, which is expected to simplify operations and enhance margins [20][21] - Cost structure improvements implemented in the second quarter are expected to deliver approximately $20 million in annualized savings [4] Q&A Session Summary Question: Discussion on the new management team and its impact - Management highlighted the recruitment of top-tier talent with experience in diagnostics and life sciences, emphasizing the importance of operational excellence and alignment within the team [28][29] Question: Concerns about growth and margin expectations for H2 - Management indicated a conservative approach to guidance, focusing on sustainable performance and the need for the new team to settle in [38][39] Question: One-time revenue tailwinds in the quarter - A $2 million insecticide tailwind was noted in the animal safety segment, but no other significant one-time revenues were reported [42] Question: Changes in the commercial organization leading to improved forecasts - The focus on basics and driving simplicity, along with a new weekly forecasting process, has improved organizational alignment and performance [48][49] Question: Confidence in the Petrifilm manufacturing process - Management expressed confidence in the Petrifilm project, stating that production testing is progressing well and remains on track for the November 2027 timeline [51][52]

Financial Data and Key Metrics Changes - Revenues for the fiscal second quarter of 2026 were $126.6 million, up 250% from $36.2 million in the prior year [12] - Adjusted EBITDA for the quarter totaled $20.2 million [15] - Net loss was $31.2 million, or $0.11 per share, while adjusted net income was positive $100,000 or $0 per share [15] Business Line Data and Key Metrics Changes - The data center hosting segment generated $41.6 million of revenue, up 15% compared to the prior year, driven by increased capacity online [13] - Turnkey fit-out services associated with the HPC hosting business contributed $73 million to revenue [12] Market Data and Key Metrics Changes - The company has secured two hyperscale leases in North Dakota, representing 600 megawatts of lease capacity and approximately $16 billion in prospective lease revenue [6][10] - Inbound demand for data center capacity has increased significantly due to competition among hyperscalers [6] Company Strategy and Development Direction - The company aims to surpass its long-term goal of $1 billion in NOI within five years, leveraging low-cost energy and a supportive regulatory environment in the Dakotas [17] - A non-binding letter of intent has been entered to combine Applied Digital Cloud with Exo to form Chronoscale, allowing each business to scale independently [20] Management's Comments on Operating Environment and Future Outlook - Management noted that the contracting environment has become more favorable over the past six months, with stable to slightly better pricing [31] - The company is in advanced discussions for three additional sites representing 900 megawatts, indicating a robust pipeline [48] Other Important Information - The company completed a $2.35 billion private offering of senior secured notes to finance the first two buildings at Polaris Forge One [12] - The company ended the quarter with $2.3 billion in cash and cash equivalents, positioning it well for future investments [15] Q&A Session Summary Question: Growth appetite in the cloud business and future GPU purchases - Management highlighted the advantage of having access to large-scale data center facilities for Chronoscale, which will help attract customers [22][23] Question: Landscape for leases and pricing changes - Management indicated that pricing has been stable to slightly better, with more favorable terms in contracts [30][31] Question: Expansion opportunities at PF1 and PF2 - Management confirmed that each campus has the potential to reach at least a gigawatt, with a clear path to grow capacity significantly [72][75]

Financial Data and Key Metrics Changes - Total first quarter reported revenue was $64 million, down 7% from the prior year, driven by an 8% decline in the enterprise division and a 2% decrease in the education division [28][32] - Adjusted EBITDA was $3.7 million compared to $7.7 million in the previous year, reflecting lower reported revenue and higher SG&A expenses [32] - Cash flows from operating activities were $0.1 million compared to $14.1 million in the previous year, primarily due to timing-related changes in working capital [32] Business Line Data and Key Metrics Changes - The enterprise division generated 74% of the company's overall revenue, with invoiced amounts growing 4% to $45.5 million [33] - North America segment invoiced amounts grew 7% to $34.9 million, and excluding government contracts, it grew 13% [33][34] - Education division revenue was $16.1 million, 2% lower than the prior year, primarily due to decreased material sales [39] Market Data and Key Metrics Changes - International segment revenue was $11.2 million, down slightly from $11.4 million in the prior year, primarily due to challenges in China [38] - Excluding China, international segment revenue increased 4%, and licensee revenue increased 8% compared to the first quarter of fiscal 2025 [38] Company Strategy and Development Direction - The company views fiscal 2026 as a year of execution and return to growth, with expectations for strong growth in invoiced amounts and reported revenue in fiscal 2027 [4][46] - Strategic investments in transforming the enterprise North America go-to-market strategy are gaining traction, with a focus on solution selling and bundling content with services [34][46] - The company aims to be the partner of choice for organizations seeking to achieve breakthrough results, emphasizing the importance of human capabilities alongside AI [17][19] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the strong growth in invoiced amounts, particularly in North America, and expects this momentum to continue [5][26] - The company anticipates that the meaningful growth in invoiced amounts will translate into substantial growth in reported revenue, Adjusted EBITDA, and free cash flow in fiscal 2027 [12][46] - Management acknowledged the impact of macroeconomic conditions and government actions on revenue recognition and deferred revenue [28][32] Other Important Information - The company has a strong liquidity position with $80 million at the end of the first quarter and no drawdowns on its credit facility [41] - The company repurchased approximately 582,000 shares in the open market at a cost of $10.4 million during the first quarter [42] Q&A Session Summary Question: Guidance for the full year and adjusted EBITDA timing - Management reaffirmed guidance for the full year, noting that adjusted EBITDA will be more back-end loaded due to the timing of large education contracts [51][52] Question: Update on North American Enterprise sales force - Management confirmed that invoice growth in Q1 was up 7% in North American Enterprise, with a significant increase in new logo subscription invoiced amounts [57][58] Question: Drivers of growth in new logo sales - Management indicated that growth was driven by a combination of higher attach rates of services and an increase in subscription sales [88][92]

Financial Data and Key Metrics Changes - Consolidated revenue for the second quarter was approximately $117.7 million, reflecting an 18.4% decline year-over-year on a constant currency basis [19][20] - Adjusted EBITDA was $4 million, resulting in a 3.4% adjusted EBITDA margin, despite revenue coming in below consensus [11][19] - Gross margin was 37.1%, down from 38.5% in the prior year quarter, impacted by higher healthcare costs and holiday pay [20][26] Business Line Data and Key Metrics Changes - On-demand segment revenue was $43 million, a decline of 18.4% year-over-year, with segment-adjusted EBITDA at $4.1 million, or a 9.5% margin [25] - Consulting segment revenue decreased by 28.8% year-over-year to $42.6 million, with segment-adjusted EBITDA at $4.5 million, or a 10.4% margin [25] - Europe and Asia Pac segment revenue grew by 0.6% year-over-year to $20.1 million, maintaining stable gross margins [25][17] - Outsourced services segment revenue was $9.4 million, up 0.8% compared to the prior year quarter, with segment-adjusted EBITDA at $1.7 million, or an 18.4% margin [25] Market Data and Key Metrics Changes - North America saw improved pipeline activity due to expanded go-to-market initiatives, while Europe and Asia Pac segments delivered both year-over-year and sequential growth [12][17] - Several North American markets showed sequential revenue growth, while lagging markets are undergoing leadership changes [16] Company Strategy and Development Direction - The company aims to align its cost structure with current revenue levels, refocus on-demand offerings, and scale its consulting business to deliver high-value solutions [7][11] - The strategy includes integrating Reference Point's capabilities to enhance collaboration and strengthen focus on CFO Advisory and Digital Transformation [14] - The company is committed to understanding how AI and automation impact client needs and is implementing these technologies to improve service delivery [10][9] Management's Comments on Operating Environment and Future Outlook - Management acknowledges a challenging market for services but believes there is a sufficiently large market for client needs that can drive growth [6] - The company expects revenue for the third quarter to be in the range of $105 million to $110 million, with gross margins anticipated to be between 35% and 36% [27][28] - Management emphasizes the importance of improving sales execution and optimizing talent to meet client needs [29] Other Important Information - The company incurred $11.9 million in one-time expenses related to the CEO transition and a reduction in force, contributing to a GAAP net loss of $12.7 million [19] - The reduction in force impacted 5% of management and administrative headcount, expected to yield annual savings of $6 million to $8 million [22] Q&A Session Summary Question: Can you elaborate on AI's impact on finance and accounting roles? - Management noted that operational accounting roles are most impacted by AI and automation, with clients experimenting with AI to enhance efficiency [31][33] Question: Is AI causing clients to delay decisions? - Management indicated that while there is uncertainty in the market, AI is not significantly causing decision delays; rather, clients are exploring how to leverage AI effectively [57][59] Question: What is the expected impact of healthcare costs on gross margins? - Management stated that healthcare costs had a significant impact, approximately $1 million+, and normalized gross margins could have reached around 38% without these costs [62] Question: What is the vision for the next 12 to 24 months? - The focus will remain on aligning cost structures with revenue, enhancing on-demand services, and growing the consulting segment to drive value for clients [51][53]

Financial Data and Key Metrics Changes - Total sales for the fiscal first quarter were $73.5 million, up from $64.5 million in the prior year period, representing a comparable sales growth of negative 2.5% [10][12] - Cost of goods sold as a percentage of sales was 29.9%, compared to 29% in the prior year quarter, influenced by tariffs on imported ingredients [11][12] - Labor costs as a percentage of sales decreased to 32.5% from 32.9% in the prior year, attributed to operational initiatives [6][11] - Net loss was $3.1 million, or negative $0.25 per share, compared to a net loss of $1 million, or negative $0.08 per share in the prior year [12][14] - Adjusted net loss was $2.8 million, or negative $0.23 per share, compared to an adjusted net loss of $1 million, or negative $0.08 per share in the prior year [13] Business Line Data and Key Metrics Changes - The company opened four new restaurants in the first quarter and has 10 units under construction, with plans to open one more in the fiscal second quarter [4][7] - Restaurant-level operating profit as a percentage of sales was 15.1%, down from 18.2% in the prior year quarter [13] Market Data and Key Metrics Changes - Comparable sales in the West Coast market were negative 2.8%, and in the Southwest market, they were negative 2.7% [10] - Effective pricing for the quarter was 3.5%, with expectations for the second quarter to be 4.5% after lapping prior year increases [10] Company Strategy and Development Direction - The company aims to open 16 new units in fiscal 2026, maintaining an annual unit growth rate above 20% [14] - The focus on aggressive cost management has reduced general and administrative expenses as a percentage of sales by 80 basis points on an adjusted basis [4] - The company is leveraging technology, such as robotic dishwashers, to improve operational efficiency [8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving qualitative comparable sales for the year, citing strong momentum from the end of the first quarter into the second [4][26] - The management noted that the pricing taken in November has led to improved traffic and sales, indicating a positive consumer response [26][32] - There is optimism regarding the potential for improved margins and sales as the company navigates tariff impacts and operational efficiencies [32][46] Other Important Information - The company has $78.5 million in cash and no debt, indicating strong liquidity [14] - The company is currently engaged in marketing campaigns tied to popular IPs, which have been well received by customers [8][105] Q&A Session Summary Question: Discussion on decoupling the reservation system from loyalty - Management noted that more than half of visits by rewards members are through the reservation system, indicating better-than-expected uptake [21][22] Question: Expectations for Q2 comparable sales - Management expects positive comps for Q2, supported by strong performance in November and December [26] Question: Impact of tariffs on food costs - Management indicated that food costs are expected to be around 30%, with a significant impact from tariffs, but negotiations have helped mitigate some costs [31][32] Question: Future promotions and collaborations - Management highlighted successful collaborations with popular IPs and plans for future promotions, including Sanrio and Jujutsu Kaisen [107] Question: Long-term growth targets - Management reiterated the target of 16 new units for the year, with no changes to the long-term growth target of 300 units in the U.S. [95][61]